Equilibrium Political Budget Cycles / Kenneth Rogoff.

Format:

Book

Author/Creator:

Rogoff, Kenneth.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w2428.

NBER working paper series no. w2428

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1987.

Summary:

Prior to elections, governments (at all levels) frequently undertake a consumption binge. Taxes are cut, transfers are raised, and government spending is distorted towards highly visible items. The "political business cycle" (better be thought of as "the political budget cycle") has been intensively examined, at least for the case of national elections. A number of proposals have been advanced for mitigating electoral cycles in fiscal policy. The present paper is the first effort to provide a fully-specified equilibrium framework for analyzing such proposals. A political budget cycle arises here via a multidimensional signaling process, in which incumbent leaders try to convince voters that they have recently been doing an excellent job in administering the government. Efforts to mitigate the cycle can easily prove counterproductive, either by impeding the transmission of information or by inducing politicians to select more costly ways of signaling. The model also indicates new directions for empirical research.

Notes:

Print version record

November 1987.